Netflix stock nosedives 19 percent after company ticks off customers

Netflix stock took a wallop after Netflix predicted 1 million US customers would cancel their subscriptions.

By
Chris Richardson, Staff /
September 16, 2011

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Netflix stock nosedive: The logo of Netflix is displayed at the headquarters in Los Gatos, Calif. Netflix lowered its US subscriber expectations for the third quarter which caused a nosedive in stocks by almost 19 percent.

Paul Sakuma/AP/File

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New York

After rocketing up last year, Netflix's stocks tumbled almost 19 percent Thursday.

Their streaming videos had become so popular that Sandvine reported in May that 22 percent of all North American Internet traffic was from Netflix (by comparison, YouTube videos only accounted for 8 percent).

Then they stirred a bee's nest. In July, Netflix announced that starting September 1, they would be changing their price structure. The net result many subscribers saw was a $6 increase in monthly fees without any improvement in service. The Twittersphere went wild and Netflix's Facebook page started filling with comments.

Then, on the day the new price plan took effect, Starz, Netflix's most valuable source of new movies, surprised everybody by announcing it would be cutting ties with them. Starz content is some of the most popular available to users and accounts for 8 percent of the streaming movies on Netflix. Subscribers saw it as a decline in service and started jumping ship.

On Thursday, Netflix projected a loss of approximately 1 million subscribers this month, lowering expectations for US subscribers for the third quarter by 4 percent.

Though Wall Street had initially embraced the rate hike in July, Thursday's announcement sent shares down 18.9 percent to $169.25.

While Netflix Inc. still believes the new pricing structure was the right move, the Associated Press reports that Jefferies & Co. analyst Youssef H. Squali said "a combination of the recent price hike, a less favorable competitive environment, and aggressive international expansion raises the risk profile of the stock."